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Abu Dhabi, UAEWednesday 20 June 2018

The first Arabian Gulf IPO of 2018 opens for subscription in Saudi Arabia 

Al Rajhi Capital's real estate investment fund is targeting a yield of 6.16% this year

Al Rajhi Capital starts sale of its real estate investment fund, the first Saudi Arabian initial public offering of 2018. Getty Images
Al Rajhi Capital starts sale of its real estate investment fund, the first Saudi Arabian initial public offering of 2018. Getty Images

The first share sale of 2018 hit the market on Monday in Saudi Arabia as Al Rajhi Capital opened its real estate investment unit's initial public offering for subscription, an increasingly popular strategy among asset managers to raise funds by listing the income yielding investment vehicles.

The Saudi Arabia-based financial services firm said it is selling 42.67 million shares in Al Rajhi REIT Fund at 10 riyals a piece from January 1 to January 14. The shariah-complaint fund aims to have a total size of 1.62 billion riyals (Dh1.59bn) and is targeting a yield of 6.16 per cent in 2018, the company said in an emailed statement.

Al Rajhi REIT will invest in commercial real estate, including retail outlets, warehouses, offices and educational establishments across the kingdom, except the two holy cities of Makkah and Medinah, said Al Rajhi Capital, the investment arm of Saudi Arabia's biggest retail bank Al Rajhi.

"The fund's investment target is to invest in income-generating assets and to lease and distribute at least 90 per cent of the fund's annual net income in cash over the fund term on a semi-annual basis," Al Rajhi said.

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Real estate investment trusts (Reits) have grown in popularity in Saudi Arabia, the region's biggest economy and Opec's top oil producer, after the regulator put the framework in place for them to be traded on the stock market in 2016. Since the approval of Reit regulation, six of them have listed on Tadawul, the Arab world's biggest bourse by market capitalisation, and have outperformed the benchmark stock index. In the past weeks, the Capital Market Authority approved the listing of two more Reits --Swicorp Wabel REIT and Jadwa REIT Saudi Fund.

Long established in developed markets like the US and the UK and even some of the emerging markets such as Hong Kong and Singapore, Reits are relatively new in this part of the world. Reits are bought and sold on securities' exchanges and the rental income generated from the underlying property assets managed by the fund distributed to shareholders as a dividend.

Al Rajhi said that currently, some 54 per cent of the fund's assets are in retail property, 12 per cent in warehouses, 26 per cent in office space and 8 per cent in the educational sector. The fund said it will have 13 assets after the initial public offering, without disclosing the value of those assets.

Al Rajhi Capital's own property portfolio in the kingdom, it said, is valued at 2.9bn riyals.